Sugar Land day trader accused of targeting his own community in investment scheme

1:40 pm, Tuesday, January 29, 2013

A Sugar Land day trader was charged Tuesday with defrauding his Houston-area clients in a high-frequency investment scheme, officials said.

The Securities and Exchange Commission alleges that Firas Hamdan provided falsified brokerage records that drastically overstated assets and hid his massive trading losses from his clients. Hamdan allegedly raised $6 million during a five-year period from at least 33 investors, who were mostly fellow members of the Houston-area Lebanese and Druze communities, according to an SEC complaint filed in a federal court in Houston.

Investigators said Hamdan told prospective investors that he would pool their investments with his own money and conduct high-frequency trading using a proprietary trading algorithm. He promised annual returns of 30 percent and assured his clients that the program was safe. Investigators said the program was a "dismal failure," generating $1.5 million in losses.

Because the program failed to deliver the promised profits, he told investors that the funds were tied up in the Greek debt crisis and MF Global bankruptcy, the complaint alleges.

"Hamdan's affinity scam preyed upon people's tendency to trust those who share common backgrounds and beliefs," said David R. Woodcock, Director of the SEC's Fort Worth Regional Office, in a statement. "Hamdan raised money by creating the aura of a successful day trader among friends and family in his community, and he continued to mislead them and hide the truth while trading losses mounted."

Hamdan is well-known in the Lebanese and Druze communities in the Houston area and is a former treasurer of the Houston branch of the American Druze Society, the complaint states. Investigators said Hamdan found investors for his trading program by talking with his friends and family in these communities.

The SEC claims that he gave his prospective investors false information about the positive returns of the program. The complaint states that Hamdan said he had positive returns in 59 of 60 months between 2007 and 2012. He presented the investors with fake documentation to support his false claims, investigators said.

Hamdan allegedly made several other false claims, including lying about the existence of a cash reserve account, an insurance policy and an $1 million investment from a well-known Dallas hedge fund manager.

The SEC is seeking an emergency court order to halt the scheme, freeze Hamdan's assets and impose financial penalties.